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Duopolistic Competition in Search Markets

Author

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  • Inderst, Roman

    (Sonderforschungsbereich 504)

  • Pfeil, Christian

    (University of Saarland)

Abstract

We analyze a model of duopolistic competition in a search market, where firms compete by choosing prices and the number of outlets, while consumers are ignorant about the individual locations. The degree of price transparency prevailing in the market is modeled by the fraction of consumers who can observe price changes by both firms. Firms compete in two stages by first determining the number of outlets and then engaging in simultaneous price competition. We analyze a particular case with a uniform distribution of buyers' search costs to show that in oligopolistic search markets price competition need not increase with higher price transparency. Instead, firms may reduce their outlet numbers sufficiently.

Suggested Citation

  • Inderst, Roman & Pfeil, Christian, 1998. "Duopolistic Competition in Search Markets," Sonderforschungsbereich 504 Publications 98-37, Sonderforschungsbereich 504, Universität Mannheim;Sonderforschungsbereich 504, University of Mannheim.
    • Handle: RePEc:xrs:sfbmaa:98-37
    Note: Financial Support from the Deutsche Forschungsgemeinschaft, SFB 504, at the University of Mannheim, is gratefully acknowledged. We also thank seminar participants at FU Berlin, University of Saarland, and Humboldt University Berlin (ESEM '98).
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